Tri-State Suburbs Pummeled By Latest Wave Of Retail Closures
Brokers, developers, landlords and investors are adjusting to the new market realities of a rapidly shifting retail landscape. Those in suburban markets are facing a different, harsher set of challenges than operators. Nowhere is that disparity being felt more than in New York City and its surrounding suburbs.
Across the country, the closure of Toys R Us stores is continuing to send shock waves through the retail sector. Last quarter, the shuttering of locations pushed retail net absorption to negative 3.8M SF, which is the the worst quarterly total in nine years, according to Reis Inc. And while 70% of the metros saw retail vacancy increases, three of the four biggest vacancy increases were in Fairfield, Connecticut, Long Island and Central New Jersey.
For perspective, more than 30 Toys R Us stores in New York, New Jersey and Connecticut are reportedly closing.
While Manhattan is undergoing a major retail reset, availability actually decreased between the first and second quarter and remained flat on last year, according to CBRE’s most recent report, as landlords continue to reduce rents.
But suburban parts of the Tri-State Area are more sparsely populated and don’t have hordes of tourists like the city.
“Most of the suburban markets are tied to big-box operators, [and] it’s not so much a big-box [climate] these days,” Lee NYC Executive Vice President and principal Mark Kapnick said. "Department stores are going away on a rapid scale."
But brokers active in the Tri-State retail sector said certain pockets outside the city are performing well, and the savvy landlords are making good use of their spaces.
Sabre Real Estate co-founder and CEO Jayson Siano said that, on Long Island, fitness concepts are taking up portions of former big-box spaces, mirroring the trend seen in the city. He said there has also been significant interest from discount stores and smaller format retailers.
“It’s similar to what they would do in a metro … now Target is able to get into more affluent markets,” Siano said, noting that Class-A retail properties remain sought-after in the area.
Siano’s firm is leading the leasing at Heritage Village, a proposed mixed-use development in Hicksville, Long Island, with 596 apartments and 200K SF of retail space located on a 26-acre site that is home to a now-shuttered Sears department store and auto center.
Luxury movie theater brand iPic Entertainment has just signed on to open a 348-seat theater, restaurant and bar there, which would be its first on Long Island.
“We thrive in areas that can’t be replaced by the internet,” Siano said, adding they are actively seeking more brands to join iPic.
It is a similar story in New Jersey, according to RKF broker Glenn Beyer, who said mixed-use properties and properties in thriving residential areas are still doing well. He recently represented Chipotle at The District at Metuchen, a 66K SF center in Metuchen, New Jersey.
“A project like that is few and far between in the downtowns because there is usually not enough land," he said.
Other brokers said suburban towns that are seeing less vacancy are the ones where zoning codes make it easy for developers to work around parking requirements.
“The towns that are changing [zoning], that’s where it’s not as hard to open because you don’t have to go through the process,” said Admiral Real Estate Services CEO Jonathan Gordon, based in Bronxville in Westchester. "Those that are not being flexible with their zoning code, they can’t prime the pump.”
In Fairfield, some retail areas are affected by the presence of certain malls, according to Allied Property Group Managing Partner Tom Torelli, who is based in Greenwich.
Simon Property Group's The Westchester mall in White Plains performs well, he said, which has created a “vacuum” in other parts of Westchester.
Meanwhile, GGP is planning a $525M mall in Norwalk, Connecticut, which is expected to open in 2019 and is reportedly already at least 60% leased. Torelli expects retail around nearby Westport to be adversely affected by that opening, when it happens.
But, he added, there has been an increase in the internet companies opening up in the area.
Torelli brought Bonobos to Greenwich, and has shown Amazon spaces in Greenwich for a bookshop. He said the demographics remain strong in Fairfield, despite concerns about a mass exodus of companies in recent years.
“Yes, you hear about the billionaires and a lot of people who have a ton of money greatly dislike the taxes that you have,” he said. “[But] people who are in the middle of their careers are here ... so we have a very vibrant community in Greenwich, and so does a lot of Westchester County.”